1) Which of the following actions will increase a company's quick ratio? A

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1) Which of the following actions will increase a company's quick ratio?

A. Reduce inventories and use the proceeds to reduce long­term debt.

B. Reduce inventories and use the proceeds to reduce current liabilities.

C. Issue short­term debt and use the proceeds to purchase inventory.

D. Issue long­term debt and use the proceeds to purchase fixed assets.

E. Issue equity and use the proceeds to purchase inventory.

 

 

2) Pepsi Corporation's current ratio is 0.5, while Coke Company's current ratio is 1.5. Both firms want to "window dress" their coming end­of­year financial statements. As part of their window dressing strategy, each firm will double its current liabilities by adding short­term debt and placing the funds obtained in the cash account. Which of the statements below best describes the actual results of these transactions?

A. The transactions will have no effect on the current ratios.

B. The current ratios of both firms will be increased.

C. The current ratios of both firms will be decreased.

D. Only Pepsi Corporation's current ratio will be increased.

E. Only Coke Company's current ratio will be increased.